UK inflation is surprising on the upside (last print 3.4%)  And central bankers have started to jaw-bone their excuses.

This week we have had two members of the MPC making speeches about why inflation has been so high in the UK, despite the large negative output gap:

Paul Tucker’s Speech

Adam Posen’s Speech

Both speakers argue the increase in inflation does not matter - the Bank will overcome it; either inflation is transitory and therefore no need to raise rates (Tucker) or if the economic recovery is sustained there will be higher rates (Posen).

The problem comes though if weaker sterling has made the UK more prone to inflation. Whilst sterling has appreciated around 10% on a trade weighted index from its nadir, any stabilization in concerns about European government indebtedness will result in sterling weakening again.

Tucker’s argument that inflation is symmetric in a recovery places hope on the argument that if inflation rose during the aftermath of the credit crisis, it will not necessarily rise further as the economy recovers.

Whilst the economic arguments outlined in the two speeches are interesting, it seems we are merely seeing some old fashioned central bankers games.

The reality in the UK is that there is about to be a huge fiscal tightening that will reduce the contribution to growth from the government.

The MPC want to demonstrate they are thinking about inflation to the markets (and public) whilst inflation remains high and above the bank’s target. By talking about it, they avoid having to tighten rates - they know the government is about to do the job for them. They just need a bot of time for fiscal policy to work through.

They also want inflation - as argued for sometime, it is nominal growth that matters to de-leveraging and tolerating higher inflation is the way to restore consumer and government balance sheets by transferring wealth from savers to borrowers.

So by talking about inflation concerns and then dismissing them, inertia will prevail. Measured by movements in interest rates as the numerator, central bankers will continue to be the least productive workers in the west. Measured by speeches, however, their productivity is likely to be the same as ever.